The case affirming the judgment below holding that in case where Eul, a small and medium enterprise Gap corporation's representative director, who has been operating Gap corporation's company for not less than 10 years, donated Gap corporation's 67,023 shares from Byung's spouse Byung and thereafter donated Gap corporation's son's shares to Byung, and it reported and paid gift tax to the head of the competent tax office by applying special taxation for gift tax on succession to family business pursuant to Article 30-6 (1) of the former Restriction of Special Taxation Act, and the head of the competent tax office corrected and notified gift tax by excluding the special taxation for gift tax on succession to Eul corporation's business on the ground that "the shares which the Byung owned shall have been donated by the donor for not less than 10 years, shall not be deemed as a requirement for applying the special taxation for gift tax under Article 30-6 (1) of the former Restriction of Special Taxation Act to succession to Eul corporation's business."

Article 30-6(1) of the former Restriction of Special Taxation Act (Amended by Act No. 12173, Jan. 1, 2014); Article 18(2)1 of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 11609, Jan. 1, 2013)

Plaintiff (Attorney Lee E-deok, Counsel for plaintiff-appellant)

The Head of Suwon Tax Office (Law Firm Ansan, Attorney Cho Yong-ju, Counsel for the plaintiff-appellant)

Daegu High Court Decision 2018Nu5278 decided May 31, 2019

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. The main text of Article 30-6(1) of the former Restriction of Special Taxation Act (amended by Act No. 12173, Jan. 1, 2014; hereinafter “former Special Act”) provides that “in cases where a resident aged 18 or older has been donated stocks or equity shares (hereinafter “stocks, etc.”) for the purpose of succeeding to the pertinent family business from a parent aged 60 or older who has continuously engaged in the family business under Article 18(2)1 of the Inheritance Tax and Gift Tax Act for at least 10 years, and succeeds to the family business as prescribed by Presidential Decree, gift tax shall be levied at a rate of 10/100 after deducting KRW 500 million from the taxable value of donated property, notwithstanding Articles 53 and 56 of the Inheritance Tax and Gift Tax Act.”

Meanwhile, Article 18(2)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11609, Jan. 1, 2013; hereinafter “former Inheritance Tax Act”) defines “family business” as “a company prescribed by Presidential Decree that continuously operates for at least ten years by an ancestor, such as a small or medium enterprise prescribed by Presidential Decree.” In addition, the main sentence of Article 15(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 24358, Feb. 15, 2013; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”) provides that where a decedent’s largest shareholder or largest investor (hereinafter “large shareholder, etc.”) of a small or medium enterprise, etc. and his/her related party’s total number of shares issued by the decedent and his/her related party, including 10/10 of the total number of shares issued by the decedent and 10/10 of the former Enforcement Decree of the same Act shall be limited to shares held by the relevant company or 30/10/10 of the former Enforcement Decree.

2. The lower court determined that the instant disposition was unlawful on April 30, 2012, on the following grounds: (a) the Plaintiff’s father, who was the Plaintiff’s father, was in office as the representative director of Red Chang Chang Co., Ltd. (hereinafter “redred Chang Chang Chang”), and continuously operated the said company for ten years or longer; (b) Nonparty 1, the spouse of Nonparty 2, on April 30, 2012, donated 67,023 shares of Red Chang Chang Chang (hereinafter “instant shares”) held for ten years or more; and (c) on May 1, 2012, recognized the fact that the Plaintiff, who was the Plaintiff’s father, donated the instant shares of Red Chang Chang Chang held before the donation of the instant shares and the instant shares together; and (d) “the Plaintiff shall hold the relevant shares donated for ten years or more” cannot be deemed to be a requirement for the special taxation of gift tax under Article 30-6(1) of the former Special Assistance Act on the Succession to Family Business.

3. Examining the records in light of the above provision and related legal principles, the above determination by the court below is just, and contrary to what is alleged in the grounds of appeal, the court below did not err by misapprehending the legal principles on the requirements for the application of special taxation of gift tax to the succession to family business under Article 30-6 (1) of the former Act and Article 18 (2) 1 of the former Inheritance and Gift Tax Act.

4. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Sang-ok (Presiding Justice)